EghtesadOnline: Indian Foreign Secretary Vijay Gokhale has highlighted the importance of development of Iran's Chabahar Port to bypass Pakistan and reach Afghanistan's market.

“We are also seeking to develop Chabahar Port as a gateway for onward connectivity to and from Afghanistan and Central Asia," he said on Thursday while speaking at a regional connectivity conference in New Delhi.

Senior officials of Afghanistan, India and Iran met in Tehran last month to discuss the development of Chabahar Port—a sign that India is committed to the project despite the threat of looming US sanctions on the West Asian country, Livemint reported.

India’s investment in Chabahar was discussed when the US interlocutor on Iran, Brian Hook, visited New Delhi last month, according to Financial Tribune.

The Indian delegation to the first meeting of the Coordination Council on Chabahar was led by T.S. Tirumurti, secretary for economic relations at India’s Foreign Ministry.

“Detailed discussions were held between the three sides on full operationalization of the trilateral agreement for international transit and transport through Chabahar Port. All sides shared the view that full operationalization of trilateral Chabahar initiative will promote connectivity and economic development of Afghanistan and the region,” the statement announced.

“It was decided to constitute a follow-up committee that would hold its first meeting within two months in Chabahar Port, Iran. It would discuss and aim to finalize a protocol to harmonize transit, roads, customs and consular matters that was shared by the Indian side at the meeting for making the route attractive, decrease logistic costs and pave the way for smooth implementation of the Trilateral Chabahar Agreement,” it added.

The next meeting of the Coordination Council will be held in the first half of 2019 in India.

It was in 2003 that India first proposed developing Chabahar Port as a gateway for the country to access the landlocked markets of Afghanistan and Central Asia, as New Delhi’s tense ties with Pakistan blocked overland trade through Pakistan.

Chabahar is located less than 100 nautical miles from the Chinese built port of Gwadar in Pakistan. In February, India and Iran signed a pact to lease to New Delhi the contract for operation of Shahid Beheshti Port or Phase-I of Chabahar.

The first phase of the strategic Iranian port developed in cooperation with India was inaugurated by Iran’s President Hassan Rouhani on Dec. 3.

Chabahar is Iran’s only oceanic port town and consists of two separate ports: Shahid Kalantari and Shahid Beheshti.

The opening of the first phase of Shahid Beheshti Port (out of five phases defined for the project), which has tripled its capacity to 8.5 million tons (equal to that of all the northern ports of the country), will allow the docking of super-large container ships (between 100,000 DWT and 120,000 DWT) and increase India’s connectivity with Afghanistan.

Under the terms of the pact, India Ports Global Ltd, an Indian company, is to take over the interim operations of Chabahar Port and operate the terminal for 18 months.

New Delhi is awaiting Iran's handover of the Shahid Beheshti port for operation by India.

“We have shipped about 110,000 metric tons of wheat and 2,000 tons of pulses from India to Afghanistan through this port (Chabahar). We might also need to pursue the development of a rail line from Chabahar to Zahedan,” Gokhale said in presence of the US envoy to India, Ken Juster who later said the two governments are discussing the US waiver for India’s Chabahar Port.

On the back of a rail link that stretches to Iran’s northwestern border, Chabahar will facilitate the transport of goods from India to the landlocked countries of the Commonwealth of Independent States as well as Afghanistan.

India has agreed to build a 500-km railroad from Chabahar to Zahedan, the provincial capital of Sistan-Baluchestan, close to the Afghan border. India’s state-owned IRCON has agreed to build a rail route at a cost of $1.6 billion as part of the transit corridor to Afghanistan.

After connecting Chabahar to Zahedan, the railroad will be linked to Zaranj in Afghanistan. Hence, when the Afghan cargo arrives in Zahedan, it can be transported by a 1,380-km railroad to Chabahar and then shipped to India.

A Rupee-Rial Mechanism for Chabahar Project

India is weighing a rupee-rial payment mechanism for the Chabahar Port project in Iran, as it weaves a way around the impending sanctions imposed by the US on the Persian Gulf nation from Nov. 4 to kickstart the port that is considered critical to the country’s geopolitical and trade interests.

“We are trying for a rupee-rial payment mechanism for Chabahar Port project,” Indian Shipping Secretary Gopal Krishna told BusinessLine. “Basically, the guarantees will have to be given in rupees now instead of in dollars or euros.”

The issue was discussed with a high-level delegation led by Deputy Minister and Managing Director for Ports and Maritime Organization of Iran Mohammad Rastad, during a recent visit to India.

The plan to set up an alternative payment mechanism reveals that India is willing to go ahead with the project even if the diplomatic lobbying for a waiver from the US on Chabahar project fails to yield results.

India’s bid to start commercial operations at the port has been held up due to banking challenges arising from the fresh round of sanctions imposed by the US.

India has picked Bandar Abbas-based Kaveh Port and Marine Services Company to run the port as a stopgap arrangement for 18 months till a full-fledged manage, operate and maintain contractor is finalized by India Ports Global Pvt Ltd.

“Kaveh Port and Marine Services will start operations on our behalf and we should be ready to make payments to them. But, at present, due to banking difficulties, we are not ready. There are banking issues on how to transfer funds and so it is on hold,” a government official said.

There is “no point starting the port, if we can’t remit/transfer funds”, the official added.

India Ports Global and Aria Banader Iranian Port signed a deal in May 2016 to equip and operate container and multi-purpose terminals at Shahid Beheshti, a project of Chabahar Port Phase-I with a capital investment of $85.21 million and annual expenditure of $22.95 million on a 10-year lease.